Into the deep end for Gold Fields CEO Mike Fraser

Mike Fraser, CEO, Gold Fields

IN-trays don’t get much fuller than those of the new Gold Fields CEO Mike Fraser. A delayed gold project in Chile, an incomplete joint venture in Ghana, a brand new executive committee and a work culture described in a recent self-appointed study as “bullying” towards women and minorities.

The mining firm had been under the watch of interim CEO Martin Preece for a year. Some analysts sympathised with Preece after he wasn’t given the job full time as he wanted. But the reality of caretaker managers is that the company loses strategic direction eventually. Perhaps Preece’s candidacy suffered during the extended period during which Gold Fields sought a replacement for Chris Griffith, its last “full-time” CEO.

But if Gold Fields has been drifting, it is doing so with currents definitely in its favour. The share has strongly outperformed all others in its sector. On a 52-week basis, the stock is 19% higher, compared with losses for its closest rival, AngloGold (-13%), and with North American powerhouses Barrick (-9%) and Newmont, down an astonishing 29%.

What to credit for the relatively strong rating that Fraser now inherits? Newmont gives some insight. In October, the US firm concluded the $17bn purchase of Australian gold miner Newcrest, consolidating its position as the world’s largest gold miner.

The classic criticism, however is whether mergers & acquisitions (M&As) make money. “It’s a question of ‘monkey-see, monkey-do'”, John Hathaway, a portfolio manager at Sprott Asset Management, said at the time about sector consolidation. Investment managers get “all lathered up”, and CEOs follow suit.

Gold Fields suffered its own dose of deal fever under Griffith, who led the company into a $7bn bid for Yamana Gold. Shareholders never got to vote, as Gold Fields was outbid before the meeting, but they weren’t in favour. Shares in Gold Fields plummeted in 2022 much as Newmont’s have done.

Fraser acknowledges in an interview that there’s still some overhang in Gold Fields shares from the “ambitious” Yamana bid, with investors asking questions about his plans.

“To remain competitive we have to replace existing resources efficiently. That may come through M&A, but it will also be through greenfields and brownfields exploration or by operating our mines more efficiently,” Fraser says. The likelihood is that it will be a combination.”

No greenhorn

Fraser, an accountant, was previously country manager for South32’s African and South American mines, which came with baggage and a lot of local pressure. Between 2020 and 2021 Fraser managed the divestment of South32’s thermal coal assets to Seriti Resources — a transaction that required the National Treasury to grease the wheels, as it were. The authority agreed to an increase in a South32 coal sales agreement to Eskom’s Duvha power station to make Seriti’s acquisition economic. So though some gold analysts claim not to know Fraser very well, he’s no greenhorn.

“The company’s valuation is pretty full on our numbers,” says Georges Lequime, a portfolio manager at Amati Strategic Metals Fund. He says Fraser has some decisions to make about a raft of issues, including whether to shut the firm’s ageing Ghana assets and how to calm shareholder nerves about Salares Norte.

The bit that is disappointing is that we have surprised the market — and any surprise is not good. We will get better at that

On December 28 the company ordered a review of the project amid a second slippage in a year in its production schedule. The project would now produce about 100,000 oz less gold than planned this year, Gold Fields said. Apart from the revenue loss there was also a 17% increase in the project’s capital expenditure to just $1.04bn. Fraser won’t say whether Gold Fields’s budget for 2024 has been materially upset by the delay at Salares Norte.

But on the issue of the project’s review, Fraser says firm was “short hand” in December when it “should have been turned into long hand” in its announcement. The fact is that Gold Fields has contracted third-party help to put in a plan to correct the sequencing of the final pieces of work to commissioning. A year-end shortage in labour didn’t help it, Fraser says. “The bit that is disappointing is that we have surprised the market — and any surprise is not good. We will get better at that. We will do a debrief when it’s complete.”

A joint venture agreement with AngloGold to merge its Iduapriem mine with Gold Fields’s Tarkwa in Ghana is another potential problem. The deal is yet to be concluded, because Ghana’s government hasn’t agreed to it. There’s much at stake. If completed, the joint venture will yield an average 600,000 oz/year in production while flattening costs and building more growth than either mine could economically manage.

The shareholding agreement, however, requires the support of Ghana. Amid sovereign debt worries, restricting the Ghanaians to a 10% stake was always going to be problematic.

“We really need to move it on. But what is a little difficult is that it’s an election year in Ghana; as you get closer to the elections decisions become politicised and people get more reluctant,” says Fraser. “We will continue to progress it with the government. I think there is general support for it, but [the question is] how to get an agreement that makes sense and is equitable for everyone.”

This article first appeared in the Financial Mail.